Been in the military only a few years? Welcome to the club! There’s a lot going on financially when you’re just getting started in your military career. Whether you plan to get out after one term, or hope to serve to earn military retirement, there are some basic money moves that will help set you up for success in the future.
This is going to be part of a series of posts on the best money moves for each chunk of ranks. Obviously, everyone’s situation is going to be different. That’s why we call it personal finance. It’s personal. But given average ages and similar incomes, different sections of the rank structure will often be at similar places in their financial plan. So, it isn’t really about rank, it’s about where you are. It just so happens that often people of similar rank are at similar places.
Disclaimer: This article is not a replacement for financial coaching or advising specific to you. Consider making an appointment with your installation’s personal financial counselor to go over your financial counseling needs.
Get Your Blended Retirement System Matching Funds
If you’re in the Blended Retirement System (BRS), be sure you are contributing at least 5% to your Thrift Savings Plan account. This will get you the full government match and you’ll be getting a total contribution of 10% to your TSP account each month. (Government matching doesn’t start until 2 years of service, but go ahead and contribute that 5% even if you are below 2 years of service. It’s a good habit to start, and the earlier you contribute, the more time it has to grow.)
EXTRA CREDIT: If you are married, be sure you are contributing to your spouse’s retirement, either through their work or through an Individual Retirement Arrangement. If you’re not married, contribute more than 5% to your TSP. Consider increasing your contribution with every pay increase.
Build An Emergency Fund
Everyone needs an emergency fund. How much you need depends on a bunch of different factors. How much would it cost you to fly home in an emergency? How big is your family? How much extra money do you have in your spending plan each month? Are you relying on two incomes?
Decide how much you need for a bare minimum emergency fund. Ours started at the price of plane tickets home. If you don’t have one, open a separate savings account specifically for this purpose. Most banks and credit unions let you name your accounts, so take advantage and give yours a compelling name. Maybe it’s simply “Emergency Fund,” or maybe it is more creative. Whatever works!
Then, make a plan to fund this account. Paying yourself first always works. Set up an allotment or automatic transfer to go out of your account in the second and sixteenth of the month.
EXTRA CREDIT: Build a larger emergency fund. Three to six months expenses is your next goal.
Pay Off Debt
Being debt free is a key to financial freedom. When your entire paycheck is already claimed before you get paid, you have no flexibility. Pay off your credit cards, car payments, and student loans. The only debt that you may want to consider keeping is a mortgage, IF you already own a home.
Not sure how to pay off debt? I don’t love everything about Dave Ramsey, but I do love how he inspires people to get out of debt. His book, Total Money Makeover, is a great start. You should be able to find it at your base library or using your branch’s online ebook system. Or, as I’ve said so many times, make an appointment with your installation’s personal financial counselor.
EXTRA CREDIT: Start saving for future expenses, so you can avoid using credit. Start a car repair and replacement fund. Start a PCS fund. Start a new furniture fund. Whatever you spend money on, start pre-planning it. We have accounts for health care expenses (co-payments, vision, and dental), car repair and replacement, travel, college expenses, even eating out.
Don’t Buy A House
Look, I know that buying a house is the American Dream, and I know that some people have the luck to be financially successful buying a house while they are still fairly new to the military. But I have seen enough nightmares to tell you that it’s a huge risk, and it’s a risk you probably shouldn’t take while you are building your financial foundations. (Did you know that I used to work in loss mitigation for a mortgage bank, working with people who couldn’t pay their mortgages. Yeah. That was interesting.)
EXTRA CREDIT: Make some housing sacrifices to keep your expenses low. Maybe that means living on base so you only need one car. Maybe that means living in an apartment instead of a house. Whatever works for you!
Don’t Upgrade Your Lifestyle
The first few years of military service have regular pay raises, and some of them are pretty big. While it is natural to want to enjoy that extra money, and you should enjoy a tiny bit, strive to continue living at your old pay rate. Use the extra money to accomplish your other goals.
EXTRA CREDIT: Keep living at your old pay rate after a second increase. Between promotions, time-in-service increases, and annual pay raises, you’re probably increasing in pay twice a year right now. Don’t let lifestyle creep steal this opportunity to get ahead.
If you aren’t doing these things, start making plans to do them. The personal financial professionals at your family service center can help you figure out how. If you are doing all these things – amazing! Keep up the good work, and look forward to the next installment of this series.